During the September 2022 market events, pension funds may have had significant offsetting margin calls between their rates and inflation trades. Accelerated collateral settlement timeframes could have helped to reduce the impact of volatile markets and time pressures of meeting margin calls. “As the collateral industry considers how best to utilize blockchain technology, we believe that the instantaneous transfer of ownership, that blockchain facilitates, to be particularly relevant,” Challice says.
J.P. Morgan is working with clients and industry participants to develop use cases for this technology, including developing the proprietary Tokenized Collateral Network (TCN), an application that will leverage J.P. Morgan’s Blockchain network, Onyx Digital Assets.
According to Challice, one use case that may have proven useful during the U.K. Gilt crisis would have been the tokenization of money market funds (MMFs). Traditionally MMFs have not been used as collateral due to the difficulties of transferring them. However, in tokenized form, they could be used to meet VM calls quickly and at scale. J.P. Morgan successfully proved out this use case in May 2022, tokenizing and transferring MMF units between two J.P. Morgan entities using its Onyx blockchain.